Late session comments from European Central Bank President
Jean-Claude Trichet turned the Euro negative on Thursday. Trichet said that the
International Monetary Fund shouldnâ€™t take the responsibility of supporting
weaker Euro Region nations away from the European Union. He was quoted as
saying an IMF bailout would be â€śvery, very badâ€ť. Bringing in the IMF sends a
message to the global financial community that the EU cannot take care of their
After trading sideway-to-better on earlier optimistic news
stories, the Euro turned around late in the trading session to finish lower.
Overnight, as investors awaited the start of the two-day European summit, the Euro
received a boost from comments by Germanyâ€™s Merkel and a decision by
the European Central Bankâ€™s Trichet.
The Euro rebounded after German Chancellor Angela Merkel
presented her aid package plan for cash-strapped and debt laden Greece. Short
covering turned the Euro around after Merkel said she supports loans from the International
Monetary Fund and other European nations as a last resort if all other means of
support fail and the country faces default.
European Central Bank President Trichet also contributed to
the turnaround in the Euro by extending the bankâ€™s emergency lending rules.
Earlier in the year, Trichet said the central bank would not ease its
collateral policy for the sake of a single country. This action gave weaker
shorts and excuse to pare their positions.
Although these actions helped to support the Euro early in
the trading session, there was still no indication that a solid bottom was in
place and that the trend was getting ready to turn higher. The EUR USD is
likely to continue to trade under volatile conditions again on Friday as news
from the European Union summit meeting is likely to leak throughout the day.
Todayâ€™s trading activity indicates that Merkel and Trichet
are not on the same page when it comes to financial aid to Greece. There
does appear to be room for compromise however, which these two heavyweights are
likely to try to exploit. This may mean a favorable loan agreement with Greece
is likely with aid from the IMF possible only in the case of default.
While all this is speculation, trader action was more
definitive. Bearish traders continued their pressure on the Euro helping it to
close on its low. Baring any major EU summit development overnight, look for
support for the Euro to continue to erode.
The U.S. Dollar was under pressure most of the day against most
major Forex markets with the exception of the Japanese Yen. Renewed interest in
higher-yielding assets contributed to the weakness due to the possibility of a
solution to the Greek fiscal situation. In addition, comments from Fed Chairman
Bernanke weakened the Dollar a little when he reiterated the Fedâ€™s conclusion
that interest rates would remain low for a â€śprolonged periodâ€ť. By the close,
the Dollar had managed to finish higher versus the European currencies and the
Japanese Yen while finishing lower against the commodity-linked Australian, New Zealand
and Canadian Dollar.
The GBP USD could not hold on to earlier gains driven by a
retail sales report. The inability of the Euro to hold on to its gains spilled
over to the British Pound which triggered an intra-day sell-off. The close on
its low and downside momentum has this market in a position to drop further
with a test of the March low at 1.4780 likely on Friday.
Strong crude oil, gold and equity markets helped pressure
the USD CAD early in the session, but downside momentum slowed once this market
could not penetrate a minor 50% retracement level at 1.0701. The subsequent
short-covering rally helped this market recover late in the session, putting it
in a position to rally further on Friday. A rally through the high from earlier
in the week at 1.0281 indicates a move to the major 50% price at 1.0369 is
possible. This is unlikely unless the Dollar/CAD gets help from weakness in
crude oil, gold and equities.
The AUD USD closed unchanged after early intraday strength.
The late session sell-off in the equity markets driven by risk fears out of Europe helped encourage the selling pressure. The weak
close could trigger a further decline on Friday. The charts indicate that a
major 50% price level at .8914 remains a viable downside target.
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